The New Real Estate Commission Law Explained And What It Means For Home Buyers

Historically, The National Association of Realtors has been responsible for writing the rules on realtor commissions. For a long time, 6% was the industry standard commission amount set by the NAR, although homes often sell for less. Unless they understood the advantages of a private home sale, sellers were primarily responsible for paying the commission fees of both their real estate agent and buyer agent. Usually, this looked like splitting that 6% commission into 3% for each broker. To maximize commission, sellers' brokers would advertise higher commission offers in order to lure in buyers' brokers. In turn, buyers' brokers might push more high-end homes on their buyers to gain that higher commission rate. This system would benefit realtors on both ends, but it hurt home sellers and homebuyers. 

In October 2023, a Kansas City jury accused the NAR of intentionally inflating commission rates, resulting in extremely high costs for sellers — and by extension, higher price tags for buyers. After a series of lawsuits fueled by disgruntled home sellers, the NAR has agreed to pay $418 million in damages and revise its rules on commissions — throwing some rules out altogether. Under the new NAR rules, sellers' brokers are now prohibited from advertising their commission rate on listings, including multiple listing services and realtor databases.

After years of struggling to afford decent homes, are real estate prices finally ebbing in buyers' favor? While it won't fix all the housing market issues today, the new rules should relieve some pressure. This latest development could be especially good news for prospective homebuyers. Because real estate agents can no longer advertise and push for high commission rates, sellers will likely save money on listing and brokerage fees. Commission rates could drop by as much as 30%, according to some economists, and as a result, sellers should be able to offer lower prices on their homes. "It might take time for the industry to shake out into a new equilibrium. But overall, the reduced transaction fees should bring the [home] prices down," explained Sonia Gilbuhk, an assistant professor at City University of New York Baruch College (via The Washington Post).

Of course, this deal still comes with some trade-offs for buyers. Because buyers' brokers are no longer guaranteed a commission from the home seller, they will likely turn to buyers themselves to satiate those fees. For buyers with extremely tight budgets, this could seem like an added expense, but the lower price of homes overall should negate this cost. Overall, buyers can expect more movement, a wider selection, and a wider range of price points. As co-chairman of the antitrust practice at Cohen Milstein, Benjamin Brown told The New York Times, "The forces of competition will be let loose."